With a focus on strengthening the economy, improving the investment climate with more public spending, boosting infrastructure and spurring demand and growth, the government may have little fiscal room in the national budget for the next fiscal for measures that specifically help the realty sector. But what will still hold the key for the annual exercise, due this time on February 29, is incentives for affordable housing and tax benefits.

The government is quite serious about its flagship programme, "Housing for All by 2022", under which five crore new houses are to be built to meet the housing shortage. And since most of the shortage is in low-cost and affordable category, it holds the key to the success of the programme. The government realises it well and the real estate sector expects some kind of incentives/tax relief to boost low cost affordable housing of carpet area up to 90 sq mts in non metros and up to 60 sq mts in metros.

Ahead of the budget, the housing and urban poverty alleviation ministry has sanctioned construction of over 81,000 houses for economically weaker sections (EWS) across 163 cities and towns for Rs 4,076 crore ($590 million). In last year's budget EWS was brought under corporate social responsibility (CSR) with a tax waiver, besides allocating Rs.4,000 crore for the National Housing Bank to promote affordable housing.

But unlike last year, this time, it is expected of the government to come up with a policy prescription to boost rental housing to tackle the massive housing shortage. The industry also expects the government to announce priority sector lending for affordable housing costing Rs.25 lakh for small and medium cities, Rs 35 lakh for metropolitan cities and Rs 50 lakh for mega cities.

Considering the focus on "Make in India", it is expected that the government will rectify its flawed SEZ policy by effecting a cut in minimum alternate tax (MAT) for special economic zone (SEZ) units that are into manufacturing and with reduction in MAT fur SEZ developers.

For the last over two years, real estate has been facing a slowdown.Though commercial real estate is well on the recovery path, residential real estate is still struggling with huge unsold inventories. Though because of tepid sales, prices have more or less become stagnant or seen a marginal decline, yet property buyers find homes unaffordable, particularly when home loan rates are still high.

Last year, the Reserve Bank of India (RBI) effected a total of 100 basis points of interest rate cuts to provide momentum to housing market but the banks passed on only a part of this to consumers, with the result that it hardly had any worthwhile impact on sales.

Another significant factor that was responsible for holding back home buyers was massive delivery defaults with long delays, badly shaking consumers' confidence. Though the industry is demanding substantial interest rate cuts to provide a fillip to housing market, considering that the RBI has little leg room tn this regard, one does not expect any relief on this front.

In this backdrop, the sector is pinning hopes on tax benefits for home loans like increasing home loan principal repayment exemption limit from Rs.1.5 lakh to at least Rs.2 lakh and increasing deduction limits on home loan interest from Rs.2 lakh to Rs.3 lakh for self-occupied property. In the 2014 budget, this limit was raised by Rs.50,000.

There is also a case for mortgage reforms to fully avail these tax benefits. Under the current rules, tax benefits can be availed by home loan takers only after they get possession of their homes. But considering long delays in delivery of homes, real estate developers are seeking an amendment to avail tax benefits from the time home buyers take loans.

Fund scarcity has played havoc with the sector, especially by way of long delays in project completion because of which developers have lost the confidence of property buyers and investors. To channelise big time domestic and global investment, the government in the last budget made real estate investment trusts (REITs) functional which could also mobilise huge retail investment because investments in REITs are quite low compared to physical real estate besides being more liquid, regulated and safe.

But despite that, REITs have failed to take off due to unattractive tax structure. In view of this, industry's demand to make tax structure attractive to make REITs functional is justified. In this year's budget, the real estate sector is demanding exemption for dividend distribution tax (DDT)-a major hurdle before REITs to take off, besides exemption in stamp duty.

Though it's highly unlikely that the government will exempt stamp duty, yet one may expect waiving off of DDT to pave the way for REITs to take off. In order to expand the funding basket, the sector has sought ECB in all spheres of housing and real estate particularly under-construction projects.

One of the oldest demands of real estate, which which is part of this year's budget wishlist as well, is easy and cheap bank funding for the sector. And to facilitate that, the apex real estate industry bodies are demanding industry status for the sector. But considering the poor financial health of banks, easy and cheap bank funding looks far fetched.

Over the last few years, the affordability of real estate has been badly hit due to rising inflation and property prices amidst worsening job market with salary freezes or nominal hikes, resulting in decline in disposable income. While the implementation of the Seventh Pay Commission report will considerably boost disposable income of government sector employees, in this year's budget, the government may well hike the personal income tax limit by about Rs 50,000 to ensure more disposable income in the hands of private sector employees to spur home buying.

To boost affordability, it is also expected that the government will carry forward its process of ease of doing business by announcing policy initiatives to do away with cumbersome and time consuming approval processes that result in cost escalation, especially when crucial reform legislation like the GST Bill, Land Acquitsition Bill, Real Estate Regulation & Development Bill are stuck in parliament.(Vinod Behl is editor, Realty Plus, a leading real estate monthly. The views expressed are personal.)